This paper aims at exploring the relationship between federalism and place-equality policies. It examines the origins, rules, and outcomes of national policies toward place equality in federal polities by means of a case study on Brazil. An extensive data set of all local government revenues and expenditures between 1996 and 2006 is examined, spanning two local government terms (1997-2000 and 2001-04), as well as the most recent period (2005-2006). The paper argues that mistrust in local elites’ commitment to citizen rights can play as important a role as weak territorial identities on state-building paths that empower the federal level to regulate state-level and local government policies. It provides evidence that federal states which entitle the centre to regulate lower-level government’s policies create mechanisms that push toward place-equality. Yet the ability of lower-level governments to disagree provides a countervailing force toward policy divergence. As a result, federal states that combine central-level regulation and local-level autonomy tend to produce a sort of “bounded place-inequality”. This outcome is explained by two apparently contradictory tendencies, namely, the regulation and redistribution role performed by the central government pushes toward uniformity, while local government autonomy pushes toward policy divergence. This interaction implies that place-inequality tends to vary, but within certain intervals.